10 Golden Rules for Successful Trading!
The following are 10 most important rules which can turn you a consistent Winner if applied properly with discipline
1. Divide your Risk Capital in 10 Equal
As part of the Successful money management, it is always advised
to divide your Risk Capital (which you can afford to lose) into
10 equal Parts and at any given time none of your Single Trade
should have more than 3 parts of your capital in it even if you
are in a winning position. At the same time always keep some
spare money for any Buying Opportunity, which may come any time.
2. Trade ONLY in active & high Volume
Many Traders get stuck with stocks for want of liquidity. Always
rely upon Stocks which have reasonably high volume over a period
of time. High Volume are always advised for easy Entry, Exit and
Stop Loss. In low volume stocks the spread is too high and
chance of Stop Loss limit getting failed is too high as there
would be no Buyer or seller at your Stop Loss Level.
3. Come Prepared with a Trading Plan
Successful traders always keep their Trading Plans ready before
entering into any transactions. One must prepare a Watch List or
Probable candidates for Day’s trading and remain focused on the
movement of those stocks only. For example a Stock ‘X’ is on
verge of a Bullish Breakout from any pattern or stock ‘Y’ has
declined substantially after an initial sharp upmove or stock
‘Z’ is close to an important support level. Successful trader
would concentrate on the movement of those stocks only and enter
the trade as soon as stock ‘X’ gives the anticipated breakout or
stock ‘Y’ starts an upmove or stock ‘Z’ breaks the support level
to initiate a trade for quick gains.
4. Never Over Trade
This is the most common mistake committed by Traders,
particularly after a Streak of winning Trades. This mistake
generally not only wipes off all the profits, but puts traders
in heavy losses. In order to remain in market while making
consistent Profits, under no circumstances, traders should go
beyond their Risk Capital.
5. Trade in 2 to 4 Stocks at a time
with strict Stop Loss.
In a Bull move, most of the stocks move up and similarly in any
Bear Move, most of the stock moves southwards. As a Trader you
know this fact but can you Buy 20 Stocks and try to make profit
in all the 20 stocks just because all are moving up or vice
versa in a Down trend? What will happen if market reverses
without any indication on any bad news? Would you be able to
monitor all your trades in such situation? Smart and Successful
trader would trade in 2 to 4 stocks with strict Stop Loss and
keep a strict vigil to avoid any misfortune in case of any
6. Sell Short as often as you go Long.
More than 90% of common investors/ Traders are ‘Bulls’ by
nature. Because they love to see prices going up only. Stocks
are bought by anybody/ corporate/ financial institutions/ Mutual
Funds to make profit on rise. They have large holdings and
mentally they wish and pray for the market to rise only. But
facts are different. History shows that Bull Phases have shorter
duration that Bear phases. So every stock that moves up will
retrace back to 38%-50%-66%. Since 90% investors are Bulls by
heart they normally do not book profit at higher levels to
re-enter later at lower levels instead they prefer to increase
their portfolio at lower levels. Successful Traders know how to
capitalize such correction. They are always prepared to go
‘Short’ as often as they trade on ‘Long’ side.
7. Don’t Trade if you are not Clear.
Many Traders, because of their daily habits trade even when
there are no signals to buy or short. Normally such situation
arrives after a sharp rise or decline when stocks are adjusting
their values. While some stocks attempt to move up, few may be
taking breather before next move. Such situation are often
confusing. There is no harm in taking rest for a day or two or
short period if the trend is choppy, unclear or doubtful,
instead of putting your money at higher risk.
8. Don’t expect Profit on Every Trade.
If you consider you are a smart trader who can make profit on
every trade, you are 100% wrong. Always be flexible and accept
the fact as soon as you realize that you are on wrong side of
the trade. Simply get out of the trade without changing your
strategy during the market; it may cause you double losses.
9. Withdraw portion of your profits.
The business of Trading is excellent as long as you are making
profits. Unlike other business your losses can be unlimited and
rapid if market does not move as per your expectations. While in
other businesses you may have other remedial measures available
but in trading it is you only who has to control it. Traders
have large egos particularly after series of successful trades
and their tendency to enlarge commitments in overconfidence may
cause major financial set back. There fore it is must that
trader must take a portion of the profit and put it in separate
account. This is absolutely must for long term stability in the
10. ‘Tips’/‘Rumors’ can ruin you sooner
or later- Don’t follow them.
Tips and Rumors are part of the game in Stock market. In most
cases these are spread by vested interests through brokers,
media, analysts, or other rumor mongers in the interest of any
particular company well before their IPO’s, or to reduce/enlarge
holdings or whatever reason. But instead of relying on Charts
which are the translated copy of Price Action of any scrip based
on demand supply. While you may be lucky if you have had made
profits on such ‘Tips’ but there are 100% chances that you are
likely to be trapped in sooner or later if trading on ‘Tips’ or
‘Rumors’ is part of your strategy. Believe in Charts, act on
Charts. There is no second best option.
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